Small broker-dealers seek legislative relief from annual audits

Bills introduced in House, Senate would remove PCAOB requirement.
JUN 18, 2018

Small broker-dealers are hoping bills introduced in the House and Senate will ease some of the costs of required annual audits. Under the legislation, small brokers would not have to hire an auditing firm registered with the Public Company Accounting Oversight Board for their reviews. The PCAOB was established in 2002 by the Sarbanes-Oxley Act to strengthen audits of public companies in the wake of the Enron and other accounting scandals. But brokers who are advocating for the legislation, the Small Business Audit Correction Act, say the PCAOB audits are complex and costly because they are designed for public companies that have shareholders and firms that retain clients' funds, rather than small, privately held brokers that do not custody client assets. "Currently, a three-person small business is held to the same standards as Merrill Lynch; this is not right, fair or reasonable," states a sample letter to lawmakers drafted by PSP Consulting, which is leading the effort to get the legislation enacted. "The one-size-fits-all PCAOB audit standards that were designed for significantly more complex companies, and are priced accordingly, have been devastating to small businesses around the country." Paige Pierce, president of PSP Consulting and senior vice president of Larimer Capital Corp., an independent broker-dealer, said a recent survey she conducted of small brokers showed PCAOB audits can cost anywhere from $8,000 to more than $40,000, depending on the size of the firm. It's one more costly regulation at a time of increasingly demanding oversight, according to Ms. Pierce. "It's the straw that's breaking the camel's back," she said. "I see this as 100% a bipartisan, Main Street-focused issue and bill." The legislation would exclude "privately held, noncustody brokers and dealers that are in good standing" from the PCAOB requirements. Prior to Sarbanes-Oxley, those firms had to hire auditors registered with the American Institute of Certified Public Accountants, who followed AICPA's auditing standards. The PCAOB targets the misuse of the public's money, something that doesn't apply to small broker-dealers, according to Jim Webb, chief executive of Cape Securities. "So, what are we auditing for?" Mr. Webb said. "The small, introducing, nonclearing broker-dealer does not handle client assets." The issue has stuck in the craw of small IBDs for years. Now they have succeeded in getting bills introduced in Congress. The bipartisan legislation was written by Sens. Tom Cotton, R-Ark., and Doug Jones, D-Ala., and Reps. French Hill, R-Ark., and Vicente Gonzalez, D-Texas. Ms. Pierce is hoping for a vote in the House Financial Services Committee later this month. A Senate time line is not clear. "Everyone told me this was impossible," she said. "Something like this doesn't happen every day. [But] we still have some base camps to take on the way up Everest." Raising the profile of the issue is an accomplishment, Mr. Webb said. "The fact that we're talking about it, and potentially getting legislation, is positive," he said. "This would be one of those big monkeys off your back that will allow [small firms] to focus on important items."

Latest News

AI surveillance tool brings prediction markets under compliance watch
AI surveillance tool brings prediction markets under compliance watch

MyComplianceOffice's AI-assisted surveillance links employee chats on Slack and Telegram with prediction market trades as Wall Street tightens rules

Advisor moves: LPL nabs $1B Northwestern team in Seattle
Advisor moves: LPL nabs $1B Northwestern team in Seattle

Elsewhere, Raymond James absorbs a family-run practice from Commonwealth into its independent channel, while RBC welcomes a father-son tandem formerly from UBS.

Social Security COLA rises to 3.6% for 2027, largest since 2023
Social Security COLA rises to 3.6% for 2027, largest since 2023

Fuel-driven inflation drove the supersized adjustment, but advocates say retirees are still losing ground as trust fund insolvency nears.

Retirement advisors have a major small business opportunity
Retirement advisors have a major small business opportunity

State mandates and plan complexity are opening doors for financial advisors in the 401 market.

Most pre-retirees are planning without a planner - and it shows
Most pre-retirees are planning without a planner - and it shows

New LIMRA data reveal a stubborn advice gap that financial professionals are well-positioned to close.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor